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Inflation targeting and the sacrifice ratio

In this paper we show that economies that adopted the inflation targeting (IT) regime have been able to "disinflate" less costly. The effect of IT on the sacrifice ratio is not only statistically significant, but also economically very important. This result is all the more interesting given the lack ofrobust empirical evidence in favor of IT. By significantly reducing the short-run costs of disinflation, IT may render the attainability of lower inflation levels politically more feasible.

Inflation Targeting; Sacrifice Ratio

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